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Introduction
I.a. name of the corporation
Macro-environment Analysis
Political Environment
The country is currently facing political instability, as there is a desire
to change our current political system to a parliament type, thus
creating a pessimistic hype for some potential long-term investors
because of possible negative political issues that loom ahead, which
can cause economic tribulations. Not to mention the unending
corruption issues of our politicians, the alleged election fraud and
corruption charges against the president and her family, the dawn of
value-added tax resulting to higher prices, and the time-to-time
resignation of the president’s economic team. Such political crises
negatively affect the profitability of the country’s businesses due to
rating outlook downgrades and higher interest rates. If debt levels
continue to decrease and higher foreign reserves were maintained,
there would be no major negative effect on business profitability.i
The political crisis may not just negatively affect the country’s
economic performance, but may also damage the confidence of the
consumers and investors as well as hinder the developments in the
financial markets. Ultimately, the political crisis only serves to
aggravate the country’s external variability to global trends such as
ii
growth moderation, rising interest rates and oil prices.
Economic Environment
The strong influx of overseas Filipino workers’ dollar remittances and
increased tourism are the main economic drivers of the peso’s surge in
2005. At the end of the previous year, the peso had become one of the
best performing currencies in the world, hitting roughly PhP 52.00 per
U.S. Dollar. This is a proof that the Philippines is on a recuperating
stage after a long suffering from a weak economic base as a direct
result of political instability, higher interest rates, low credit ratings,
and other economic performance risks. If the momentum from last
year’s final quarter shall continue, it is projected that the Philippine
Economic System will continue to anticipate a positive outlook and
slow-but-sure growth.iii
However, basic commodities still has skyrocket-high prices and the
living condition today is getting even worse. The lack of local job
opportunities has also increased the trend of “brain drain” as more and
more Filipinos seek jobs abroad. These further on result in a steady
increase in the unemployment rate of Filipinos.
Wage Rate
Currently, the minimum wage rate in Metro Manila is currently pegged
at PhP 288 to PhP 325 a day (eight working hours per day), the highest
among the regions. However, there is an ongoing legislation in
Congress to increase the minimum wages to cushion the impact of the
vii
expanded value-added tax on workers.
Inflation
As of the year ended 2005, Inflation rate rocketed to 7.6 percent from
the previous year’s 6.0 percent - a 1.6 percent difference. viii The
Bangko Sentral ng Pilipinas is targeting the inflation rate to average
between four to five percent in 2006. The inflation forecast for the
year, however, is placed at 7.5 to 8.2 percent. According to the BSP,
there is little sign of any inflationary pressures building in the
Philippine economy. The BSP Deputy Governor Diwa Guinigundo also
said that the planned rise in the sales tax to 12 percent from 10 in
February could cause an upward blip in inflation levels, but that would
ix
be short-lived. However, high oil prices will remain as the main threat
to inflation this year, which have already taken some of the buoyancy
out of consumer spending last year. But amidst the threats, the strong
peso and easing food prices help balance inflationary risks.
The 2006 Fiscal program assumed that the average exchange rate
would settle at Php56.00 to a US Dollar, and that the benchmark 91-
xi
day Treasury bill rate would hit eight percent.
Value-added Tax
The month of February has been welcomed with the imposition of, the
new 12 percent value added tax. Moves by the government to raise
the level of value added tax (VAT) from 10 percent to 12 percent would
hit hardest the country's poor and its small businesses, the American
Chamber of Commerce of the Philippines said. They also asserted that
any increase in VAT would pose a serious burden on the country's poor
and small to medium size enterprises and would also lead to greater
tax avoidance. With the current minimum wage rates, it is highly
doubtful if the Filipino wage earner could absorb price hikes to be
triggered by the increase in VAT as well as other taxes. Employers
likewise may not be prepared to incur additional expenditures
particularly at this time of economic crises, concluded by the business
group.xii
Socio-cultural Environment
Demographics
Populationxiii
Population in the Philippines is increasing at a 1.84 percent growth rate
and is now currently pegged at 87.9 million Filipinos. The highest
concentration of people is found in the NCR, which is 12.98 percent of
the total population, Southern Tagalog, with 15.42 percent, Central
Luzon with 10.5 percent, and Western Visayas, with 8.12 percent.
The age structure of the population is divided into three brackets. The
first one is from 0-14 years old, which include 35.4 percent of the
population. The second bracket of ages 15 to 64 comprises of 60.6
percent of the population. The third age bracket, which is composed of
Filipinos 65 years old and above, covers only 4 percent. The median
age for males is 21.77 years whereas for females, it is only 22.8 years.
Labor Forcexiv
The total number of working people with ages 15 years and above is
pegged at 54,797,000, an estimated 35,496,000 of which is included in
the labor force, thus a 64.8 percent labor force participation rate.
Starting April 2005, the new unemployment definition was adopted per
NSCB Resolution No. 15 dated October 20, 2004. As indicated in the
said resolution, the unemployed include all persons who are 15 years
old and over as of their last birthday and are reported as (1) without
work; AND (2) currently available for work; AND (3) seeking work OR
not seeking work due to valid reasons. Data shows that 2,620,000 are
unemployed, 48.8 percent of which were 15-24 years of age. Moreover,
61.6 percent of the total unemployed population were males while 38.4
percent were females.
According to the NSO’s Labor Force Survey, men and women comprise
61 and 39percent of the 2002 labor force, respectively. In addition, it
was found that women had a 51.7 percent labor participation rate
while men participated in the labor force at a rate of 80.8 percent.
Employment rate for women was 89.9 percent whereas men’s
employment rate was at 89.9 percent. In terms of major occupation
groups, majority of professionals, clerks and officials and special-
interest organizations, corporate executives, managers, managing
proprietors and supervisors were women. On the other hand, majority
of plant and machine operators and assemblers, farmers, foresters and
fishers, and tradespersons were men. In terms of major industry
groups, more women belonged in the education, health and social
work, and wholesale and retail trade industries while more men were
found to be dominant in the construction, transportation, storage and
communication, and fishing industries.
Technological Environment
Industrialization
The manufacturing, along with the closely associated activities in the
clothing and garment production, continues to be one of the driving
forces of industrialization the world over. The clothing industries have
fought to maintain their share of the total value that is created
throughout the series of apparel design, manufacturing and
xvi
distribution.
Automation
At present, technology in the garment industry here in the Philippines
consists mainly of automation of the processes. These include the
automated designing of the patterns as well as that of fabric laying and
cutting. Electronically controlled mechanisms are also used for stitch
formation and fabric feeding for the basic sewing machines. The last
of the processes include automated machines and devices for pressing
the clothes.xvii In addition, current developments in machineries include
designs which enable fast adjustments of equipment from one style to
another thus eliminating the non-productive handling of fabrics and
garments. In the process, quality is thus being improved.xviii
Other Developments
The Garments and Textile Board of the Philippines has recently
installed an Electronic Data Interchange (EDI) system to reduce
processing time to help improve production and delivery lead-time. It
allows garment manufacturers-exporters (GMEs) to transact with
Garments and Textile Export Board (GTEB) electronically. The costs
associated with implementation of EDI include the costs for acquiring
the software and the hardware themselves, training and ongoing costs
such as Value-Added Network (VAN) charges, maintenance and support
costs.xix In addition, the leading companies in the industry have started
to acquire CAD/CAM techniques, “Quick Response”, and “Just in Time”
philosophies to allow more flexible manufacturing.
Micro-environment Analysis
II.b.1. garments industry [historical background]
[research on Board of Investments of the Philippines
regarding graph of top exports in comparison with other
industries in terms of revenues]
1
A Short History of Denim
2
Cotton Textile and Apparel Products
Jeans customization is somewhat an old concept because of the
proliferation of tailoring shops. These shops cater buyers who can be
dissatisfied with the jeans available in the market or who just wants to
alter a jeans bought from a certain store. However, the idea of custom-
fit jeans is still a fresh concept in the garments industry, particularly in
the Philippines. Only few buyers, particularly those in the upper class,
avail/can avail these products because of the products’ perceived high-
end status and high price.
Suppliers
Denim has always been made of cotton. Philippine raw cotton
production supplies less than 3 percent of total domestic cotton
requirements, thus Philippines manufacturers continue to rely on
imports to meet domestic demand. The United States is likely to
remain the largest supplier of combed cotton, followed by Pakistan,
Australia and South Africa. With the end of the quota system for
garments starting in 2005, domestic cotton consumption is forecast to
decline next year. The garments and textile sector is the single largest
buyer of raw cotton and the garments sector is country's second
highest export earner.3
New Entrants
Barriers to entry include global and local policies implemented in the
textiles and clothing industry, capital requirements, access to
distribution channels, product differentiation, and cumulative
experience, among others.
4
Cotton Textile and Apparel Products
Capital requirements include high-speed and highly-efficient sewing
machines, high-quality denim fabric, among others. Human resources
in the form of tailors are also essential in this business.
Substitute Products
Ready-made retail products are considered substitutes for custom-
made clothing. Moreover, denim pants could be replaced by shorts and
skirts as bottom apparel. The denim fabric could also be replaced by
other fabrics such as those used in khaki pants and slacks.
Industry Competitors
The Philippine garment industry dates to the 1950s and the emergence
of cottage-level industries that replaced homework. As the industry
began exporting during the 1970s, it experienced rapid growth,
growing an average of 30 percent between 1972 and 1980. The
industry is at a crossroads of uncertainty regarding the effects of global
trade liberalization. It is expected that the removal of quotas will cause
further erosion in the industry, with only larger, well-capitalized firms
able to survive.5
5
Cotton Textile and Apparel Products in Philippines
The garment industry is comprised of many players, both operating on
a large scale and small scale basis. The industry is a growing one;
exports of garments are steadily increasing too as more foreign
companies continues to trust the skills of local manufacturers in
producing quality garments. The local garments and textile industry is
the country's consistent second top performer in terms of export
revenue. The Philippines is also one of the main product suppliers for
high-end clothing brands such as GAP, Old Navy, Ann Taylor, Liz
Clairborne, and Polo Ralph Lauren.6
V. Marketing Research
In order to gather relevant and sufficient data for this feasibility study, EALA
Inc. devised a market research instrument, in the form of a self-administered
survey, on the jean-preference and buying behavior of the target market.
6
Behind the Seams http://www.philippinebusiness.com.ph/archives/magazine/vol11-2004/11-/forecast.htm\
EALA Inc. sought the help of a statistician in the person of Ms. Sunshine Ong,
a BS Statistics graduate from the University of the Philippines- Diliman, to aid
in the development of a research instrument, selection of a suitable sampling
method, and processing of relevant statistical data.
Geographic Segmentation
EALA Inc. subdivided the market into location-based segments
(residential areas within a XX-kilometer radius from the location of the
proposed business) because consumers’ wants and product usage are
often related to one or more of these subcategories. Also, this
geographic measure is measurable and accessible.
Demographic Segmentation
Demographics was also one of the indicators considered by Pantsaloon.
The most popular combination of factors include age, family, life cycle
stage, income, occupation and education.
Age
EALA Inc. segmented the market to cater to 17 – 29 year-olds. The
reason for this is that this segment shows the highest demand for
Pantsaloon’s products.
Income
The consumer’s level of income is an important factor in the profiling
of Pantsaloon’s market, as income is an effective indicator that reflects
the buying power and spending habits of the students and yuppies for
whom the products are made for.
The growing purchasing power of this age bracket is the primary factor
making this age bracket attractive. For yuppies, the trend is being
fuelled by higher disposable incomes resulting from more generous
allowances and salaries. On the other hand, college students opting to
work part-time during schooling, and heightened media awareness
augments their purchasing power.
Personality Characteristics
The college student and yuppies market is a dynamic and extremely
competitive environment. Though there are plenty of opportunities for
new entrants and a great scope for innovation, the target audience is
extremely hard to please.
Having the products and services evolve with the moment, together
with extensive and focused marketing efforts, Pantsaloon hopes to
retain the interest and loyalty of the market in consideration.
College students and yuppies, at their young age, are attracted by fun,
glamorous and distinctive brands. Finally, while they have a strong
desire to be like everyone else, they still have a very strong need to
express their individuality.
Lifestyle
As mentioned previously, the target market combines a desire for
belonging and a need to express their uniqueness. Joining the
bandwagon is prevalent among them, with cliques and barkadas being
a common thing in this age bracket. In fact, people are usually first
identified with the group of people they hang out with before they get
to be recognized as individuals.
The trends dictated by society, media, and the people around them
influence their lifestyle and behavior, and being updated with the
latest in fashion, music, movies, electronic gadgets and the like is as
important as expressing their individual selves.
Behavioral Segmentation
(will be based on survey results)
Occasions
Most college students purchase clothes, i.e. in this case, t-shirts, when
they most have money. Out of 824 valid respondents, they buy their
shirts during the 2nd and 4th quarter months (April, May, June, and
October, November, December), as indicated from the market survey
conducted. Below is a graph of the number of college students buying
t-shirts divided into quarters.
Benefits Sought
The graph below indicates the importance of several characteristics
considered by college students in buying a t-shirt. 5 is considered most
important while 0 means not considered at all. Most important benefits
sought are wellness of fit, type of fabric, and design of prints. Ranking
next are price and style of shirt. Price, on the other hand, is not very
important to them.
Usage Rate
The level of usage college students make of t-shirts is HEAVY.
According to the survey conducted, 52% purchase 2-5 shirts on a 6-
month basis, 30% purchase 6-9 shirts, 8% purchase less than two
shirts, 6% purchase 10-13 shirts, and 4% purchase more than 13
shirts.
User Status
Much like everyone else, college students are jean regulars. Jeans,
classified within the clothing category, are commodities/necessities
that are a part of their everyday life.
Yuppies on the other hand, wear jeans less often, relative to the
younger college students. However, as part of their “self-centered”
lifestyle includes going out often, jeans are still a staple in their closets.
Loyalty Status
As stated earlier, this particular age bracket is erratic and
unpredictable in their approach to brand loyalty. Categorized as
“Switchers”, they do not automatically seek out a particular brand, but
more often purchase the brand available to them or that which caters
to their taste and preference.
(also survey-based)
Young professionals also have this need of uniqueness and standing out
among others. They make sure that they are distinctively different from
others, whatever it takes. Having their own source of income lets them
address this need.
Gil C. Cabaccungan, Jerome Aning, “Palace: It’s Time Congress Enacted Wage
vii
Increase”[Online] Available
http://news.inq7.net/nation/index.php?index=1&story_id=55347, November 3, 2005
viii
“Economic Statistics.” [Online] Available
http://www.philippinebusiness.com.ph/economic_stats/economy.htm, August 2005.
ix
“Inflation Seen to Remain Stable”, B5 Business Section, The Philippine Daily Inquirer,
January 25, 2006
x
“Worst Over For Philippine Debt, Says Poll; Peso, Stocks Up.” [Online] Available
http://money.inq7.net/topstories/view_topstories.php?yyyy=2005&mon=07&dd=19&file=
1, July 19, 2005.
xi
“Government Expects Billions in Savings” The Philippine Daily Inquirer.
January 23, 2006
Byrne, Chris. “The Impact of New Technology in the Clothing Industry: Outlook to 2000”
xvi
[Paper]
xvii
“Clothing Engineering.” [Online] Available
http://www.fs.uni-mb.si/en/study/ects/IP%20-%20Clothing%20engineering.pdf
Dueñas-Caparas, Ma. Teresa. “State of Competition in the Wholesale and Retail Sector”
xviii
[Paper]
xix
“Electronic Data Interchange – A Management Overview.” [Online] Available
http://66.102.7.104/search?q=cache:JAUTozWtU_4J:www.unece.org/trade/untdid/download
/r1222.pdf+GTEBNet+EDI+costs+OR+fee&hl=en&client=firefox-a. August 2005